5.11 Shares as a Means of Payment 249the rules that protect shareholders, the valuation of the participating companies’
shares, the share exchange ratio, and the amount of any cash payment. In addition,
shareholders will consider what will happen if they dissent.
Much of that information is contained in the draft terms of the merger (merger
plan). Draft terms of merger must be published at least the minimum of one month
before the date fixed for the general meeting which is to decide on the merger.^560
The merger also requires the submission of proposals and opinions (see below)
to the general meeting, and a listed company must comply with the information
regime for listed companies (section 5.9).
Information intermediaries. Although that information is disclosed to share-
holders, it may be difficult for a shareholder to understand the transaction. For ex-
ample, mergers can raise difficult legal questions and difficult questions of valua-
tion. Whereas insiders and controlling shareholders know more about the expected
general and private benefits of the proposed transaction, non-controlling minority
shareholders and employees must rely on information intermediaries (for informa-
tion intermediaries, see Volume I).
The most important information intermediary is the board. The board will be
responsible for the draft terms of the merger and the proposals submitted to the
general meeting. In addition, the board must submit a report. For example, the
Third Company Law Directive provides: “The administration or management bod-
ies of each of the merging companies shall draw up a detailed written report ex-
plaining the draft terms of merger and setting out the legal and economic grounds
for them, in particular the share exchange ratio. The report shall also describe any
special valuation difficulties which have arisen.”^561
The merger plan will be reviewed by independent experts, another class of in-
formation intermediaries. They will submit a report to the general meeting.^562
In addition, the board will usually obtain a fairness opinion from an investment
bank and submit it to the general meeting. The stated purpose of fairness opinions
is often to ensure that the merger consideration is fair to shareholders from a fi-
nancial point of view. In addition, their purpose is to: make the proposed transac-
tion look good; signal to shareholders that they should vote for the merger; and to
mitigate the risk of board members’ liability for breach of duty. The board may
also submit other opinions by independent advisers. The submission of a fairness
opinion or the substance of other independent advice can be mandatory under the
applicable securities markets laws. Even when it is not mandatory, it may be part
of commercial practice (for fairness opinions and independent advice, see also
sections 13.4, 17.3 and 19.9).
Depending on the transaction and the governing law, the legality of the merger
can be scrutinised by the competent authority. This is mandatory when an SE is
(^560) Article 6 of Directive 78/855/EEC (Third Company Law Directive).
(^561) Article 9 of Directive 78/855/EEC (Third Company Law Directive). See also Article 7
of Directive 2005/56/EC (Directive on cross-border mergers); Article 18 of Regulation
2157/2001 (SE Regulation).
(^562) Article 10 of Directive 78/855/EEC (Third Company Law Directive); Article 8 of Direc-
tive 2005/56/EC (Directive on cross-border mergers); Article 22 of Regulation
2157/2001 (SE Regulation).